FTSE 100 Live 20 October: Inflation rate dips to 3.1% as Netflix earnings impress after Squid Game boost

Buy recommendations for Pets at Home and WH Smith failed to ignite their shares today as investors focused on the prospect of another torrid winter for the retail sector.

The recent spike in Covid-19 cases has added to selling pressure, with sentiment already weakened by the perfect storm of rising labour, freight and raw material costs.

For Deutsche Bank, this means companies that have performed well during the pandemic, such as B&Q owner Kingfisher and B&M European Value Retail, will have to surrender some of their hard-won margin gains.

The City bank placed a “sell“ recommendation on B&M and instead favours Pets at Home for its exposure to pet ownership trends and WH Smith as the travel sector rebuilds.

Shares in both stocks were lower today despite the “buy” recommendations, with WH Smith caught in a wider sell-off in the airline sector as Covid cases in the UK continue to rise.

British Airways owner IAG fell 6% yesterday and was off by another 7.6p to 158p, not helped by analysts at Peel Hunt jettisoning their buy rating and reducing the broker’s target price from 215p to 178p on the back of surging jet fuel costs.

IAG was joined on the blue-chip fallers board by Antofagasta after its latest production report highlighted ongoing disruption from the 12-year drought in Chile. Antofagasta’s overall copper production and cost performance during the third quarter was in line with expectations but shares still fell 4% or 65.5p to 1410.5p.

The FTSE 100 index was 15.5 points lower at 7202.03, with defensive stocks including safety products conglomerate Halma and wind farms giant SSE the biggest risers.

Sentiment was also favourable towards British Gas owner Centrica, which resumed its upward momentum with a gain of 4% or 2.1p to 60.6p. It led the FTSE 250 index, which fell 36.62 points to 23,017.47 amid the weakness in consumer-focused stocks.

Shares in British Airways owner IAG came under more selling pressure today, falling another 6p to 159.6p on top of the 6% decline seen yesterday.

Rising costs, including the recent surge in jet fuel prices, have combined with a spike in Covid-19 cases to stall the airline sector’s recovery.

Berenberg dumped its “buy” recommendation on IAG yesterday, with Peel Hunt following suit today. The broker now has a price target of 178p, compared with 215p previously.

Analyst Alex Paterson said: “We cut our forecasts by a significant amount as we do not expect yields to rise sufficiently quickly to mitigate the fuel cost pressure, which may worsen and be exacerbated by higher airport charges.”

Hammerson has said it does not expect to provide further rent support for tenants, with trading recently picking up after the tough pandemic year.

During the Covid-19 crisis the FTSE 250 retail landlord agreed rent holidays and deferrals for some tenants. The government also introduced a moratorium on business evictions to help occupiers that were struggling amid lockdowns.

Hammerson, a joint owner of the Brent Cross mall and behind Birmingham’s Bullring centre, today said: “We remain focused on collecting arrears. We do not anticipate granting future concessions and all avenues to collect rents due are being pursued.”

The update came as the property firm said footfall in all territories now stands at around 15-20% below 2019 levels, although some centres in the UK exceeded what was seen two years ago around the August bank holiday weekend, and have continued to perform strongly since.

Arena Events, which builds temporary grandstands and structures for sporting events including the Ryder Cup and Cheltenham races, today backed a £71 million takeover proposal involving its 24% shareholder, the Saudi Arabian investment firm Tasheel.

The consortium also features UAE-based conglomerate IHC, which has worked with Arena previously. The 21p a share bid, which is subject to shareholder approval, represents a 48% premium on last night’s AIM-listed price.

Chairman Ken Hanna said new ownership ensures the funding and support to become a leader in the event rental market.

Hanna added: “Over the last 15 years, under the leadership of Greg Lawless and his management team, Arena has grown from a small, UK based furniture rental business to a leading event rental business.

“Having spent most of the last two decades chasing around the world building the group, and subject to the successful conclusion of this transaction, Greg intends to step down as group CEO.

The FTSE 100 index is down 5.74 points at 7211.79, driven lower by mining stocks following price weakness for several commodities including coal and aluminium.

Glencore and BHP dipped 1%, but the biggest decline came from Antofagasta after its latest production report highlighted ongoing disruption from the 12-year drought in Chile.

The traditional rainy season ended in September, putting pressure on operations at the company’s Los Pelambres mine until a new desalination plants comes into service next year.

Antofagasta’s overall copper production and cost performance during the third quarter was in line with expectations but shares still fell 5% or 73p to 1403p.

Burberry shares were among the biggest risers in the FTSE 100 index after the luxury goods business appointed Versace boss Jonathan Akeroyd as its next chief executive. Shares lifted 28p to 1858p.

Luxury fashion firm Burberry has appointed Jonathan Akeroyd, currently at Versace, as its chief executive with effect from April next year.

Akeroyd has been boss of Milan-based Gianni Versace since 2016. The label was sold to US group Capri, behind Michael Kors, in 2018. Prior to that Akeroyd led Alexander McQueen for more than a decade, overseeing a turnaround there.

Buy shares in Pets at Home and WH Smith, sell B&M European Value Retail are some of the recommendations to come out of Deutsche Bank’s sweep of European speciality retail.

The analysis covers retailers in sub-sectors including travel retail, DIY, discount and pet care.

Deutsche Bank analyst Matt Garland said: “These segments have generally shown long-term structural growth with the winning formats delivering a differentiated and profitable offer. Covid has seen a dramatic divergence in performance and we believe this will reverse in 2022.”

Pets at Home has a price target of 555p compared with 474.8p last night, while WH Smith is seen as reaching 1840p, up from 1605p. B&M shares have been a pandemic winner, but Deutsche Bank thinks they are worth 500p compared with 609p today.

Bank shares including Lloyds Banking Group and Barclays have moved steadily higher in recent weeks on speculation that UK interest rates may see a rise before Christmas.

Alongside this potential boost to net interest income, the sector is now also poised to get a lift from the Chancellor after the Financial Times reported that Rishi Sunak is planning to slash a tax surcharge on profits from 8% to 3% from April 2023.

His move is designed to keep the City competitive, particularly in light of the scheduled increase in corporation tax from 19% to 25% by 2023. Sunak is expected to unveil the plan in his budget statement next Wednesday.

European markets are taking their lead from Wall Street after more strong earnings figures helped the S&P500 and Nasdaq to climb about 0.7% last night.

There have been very few negative downgrades of 2022 guidance in results posted so far, despite the margin pressure created by rising costs and supply chain disruption.

Netflix last night reported a 9.4% year-on-year increase in global paid memberships in the third quarter, driven by the popularity of shows such as Squid Game and Lupin.

The overall figure of 213.6 million subscribers was slightly better than management had expected, driven by strong growth in Asia Pacific as quarterly operating profits rose by a third to $1.8 billion.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Given the group is lapping incredibly strong growth delivered during the pandemic, this is no mean feat.

“The fact growth is now being driven by progress outside the core North American and European markets is testament to the global appeal of Netflix content – something some commentators have been sceptical of in the past.”

In commodities, the coal price fell sharply today after China’s threat to intervene in onshore markets in order to cap prices.

There were also jitters around this weekend’s the first 30-day grace period on unpaid offshore bonds held by debt laden property firm Evergrande.

Oanda’s senior market analyst Jeffrey Halley said: “The silence from Evergrande and the government is deafening, and as other developers default or struggle to pay offshore debts, this story may make its way back to the front pages.”

The FTSE 100 index is forecast by CMC Markets to open 10 points higher at 7227.